A business's overall competitive theme; the way it positions itself in the marketplace to gain a competitive advantage, and the different positioning strategies that it can use in different industry settings.

When innovations push out the efficiency frontier in an industry, allowing for greater value to be offered through superior differentiation at a lower cost than was previously thought possible.

The way a company decides to group customers, based on important differences in their needs, in order to gain a competitive advantage.

When a company decides to ignore different segments and produces a standardized product for the average consumer.

When a company decides to serve many segments, or even the entire market, producing different offerings for different segments.

When a company decides to serve a limited number of segments, or just one segment.

A strategy that gives a company a specific form of competitive position and advantage vis-à-vis its rivals, resulting in above-average profitability.

When a company lowers costs so that it can lower prices and still make a profit.

When a company differentiates its product in some way, such as by recognizing different segments or offering different products to each segment.

When a company targets a certain segment or niche and tries to be the low-cost player in that niche.

When a company targets a certain segment or niche and customizes its offering to the needs of that particular segment through the addition of features and functions.

Successful Differentiation

• Option 1
  • Increase Prices more than Costs
    • Higher profitability and profit growth
• Option 2
  • Moderate or no price Increase
    • Increase Demand
      • Economies of scale and lower costs
        • Higher profitability and profit growth

Successful differentiation might be able to subsequently reduce costs if differentiation leads to significant demand growth and the attainment of scale economies. But in actuality, the relationship between ow cost and differentiation is subtler than this. Strategy is not so much about making discrete choices as it is about achieving the right balance between differentiation and low costs.

1. Do Not tailor different offerings to different segments and instead produce and sell a standardized product that is targeted at the average customer in that market.
2. Recognize differences between segments and create different product offerings for each segment.
3. Target only a limited number of market segments, or just one, and to become the very best at serving that particular segment.

• Superior reliability
• Better design
• Superior functions and features
• Better point-of-sale service
• Better after-sales service and support
• Better branding

1. Allows a company to charge a premium price for its good or service.
2. Helps the company grow overall demand and capture market share from its rivals

1. They have to add features and functions to their products that appeal to higher-income consumers, and this raises costs.
2. The relatively limited nature of demand associated with serving a given segment of the market may make it hard to attain economies of scale.

For a company’s business-level strategy to translate into a competitive advantage, it must be well implemented. This means that actions taken at the functional level should support the business-level strategy, as should the organizational arrangements of the enterprise.

Specific functional-level strategies designed to improve differentiation include:

• Customization of the product offering and marketing mix to different market segments.
• Designing product offerings that have high perceived quality in terms of their functions, features, and performance, in addition to being reliable.
• A well-developed customer-care function for quickly handling and responding to customer inquiries and problems.
• Marketing efforts focused on brand building and perceived differentiation from rivals.
• Hiring and employee development strategies designed to ensure that employees act in a manner that is consistent with the image that the company is trying to project to the world

A fundamental shift in the industry by figuring out ways to offer more value through differentiation at a lower cost than their rivals. 

1. Eliminate: Which factors that rivals take for granted in our industry can be eliminated, thereby reducing costs?

2. Reduce: Which factors should be reduced well below the standard in our industry, thereby lowering costs?

3. Raise: Which factors should be raised above the standard in our industry, thereby increasing value?

4. Create: What factors can we create that rivals do not offer, thereby increasing value?